Main public interest is economic growth
January 28, 2016
In our last column, we specified the duty of elected public officials: a fiduciary duty to voters, taxpayers and the broad public interest. Not, as some people claim, to government institutions such as the system of higher education, the military or some social service agency.
Not to so-called stakeholders such as labor unions, any industry, nor some demographic segment or client group for government services. All such groups, being human, are inherently special interests that will be as predatory upon the voters, taxpayers and broad public interest as they are allowed to be by legislators, governors, school boards, etc.
Not even to noble sounding causes such as the environment, education, or public health. Almost invariably, advocacy for such causes degenerates to advocacy for the provider bureaucracy servicing that cause or to client groups favoring it. Provider bureaucracies and client groups will also be as predatory upon voters, taxpayers and the broad public interest as they are allowed to be.
We also said that another day we'd explain why the public interest in human wellbeing and fairness and in balancing competing interests is served mainly by promoting economic growth. Today we do so.
The social value of growth is self-evident. When the economy grows 2.5 percent per person annually in real terms (that is, above inflation), then each generation is literally twice as well off on average as its parents' generation. When it grows only 1.0 percent per year, each generation's standard of living is only 32% higher than its parents' level (calling 28 years a generation). With 2.5 percent growth, today's typical $50,000 annual family income becomes $100,000, but at 1.0 percent it grows to only $66,000.
Economists now understand that growth results mainly from getting right the key social, political and economic institutions, policies and practices. These include especially the rule of law, limited government with separation of powers, personal liberty, individual (not group) rights, strong property rights and high levels of economic freedom. These factors are essential for growth and almost assure it even in countries lacking natural resources, favorable geography and other such benefits.
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Government ineffectually tries to create wealth by dictating what people must and may not do. Market systems cause people to serve the public interest by creating and delivering value to others in order to improve their own wellbeing via mutually voluntary exchange.
Rapid growth emerged as these key social and economic policy were embraced three centuries ago and lasted through our parents' generations. Then, due mainly to erosion of those policies, practices and institutions, growth began to slow, reaching 1.0 percent nearly a decade ago.
Economic growth is not a zero-sum game in which the gains of some people come at the expense of others. It's a positive-sum game in which the benefits to each person propagate to others. Since human wellbeing — life expectancies, health, nutrition, better housing, opportunities for increased education, etc. — rise with real incomes, the value and importance of economic growth seems obvious.
Moreover, these policies, practices and institutions, including market systems, not only promote aggregate human wellbeing; they also promote fairness, justice and equity. With individual liberty and economic freedom, people are free to pursue their values and interests and they flourish in many ways, not just in material wellbeing. With secure property rights, people get to keep the fruits of their labor, investment, creativity and productivity and not have them taken away for cronies and favored constituencies of politicians.
As a society, we take care of the least fortunate and those unable to take adequate care of themselves. That's a moral obligation people should and do observe, but it's also an area where government plays a role. Economic growth allows us to better care for them.
However, caring for children, the infirm and the truly unfortunate is not the same as the predatory actions of income redistribution to achieve equal outcomes for productive and unproductive folks alike. Taking care of people truly needing help is human decency; redistribution destroys the incentives that cause people to create the wealth that benefits themselves and others, and it is also essentially unfair, unjust, inequitable.
So, politicians advocating for particular causes instead of growth are not serving the broad public interest.
Ron Knecht is Nevada's elected controller and Geoffrey Lawrence is assistant controller.